At the November 2018 SIFMA C&L New York Regional Seminar, Susan Schroeder, FINRA’s Executive Vice President and Head of Enforcement, discussed some of FINRA’s enforcement priorities heading into 2019. You can expect these to be included when the official list comes out in January. (See here for FINRA’s 2018 enforcement priorities.)

SUITABILITY

FINRA will continue to enforce rules intended to reduce the incidence of inappropriate and unsuitable sales of products.

QUANTITATIVE SUITABILITY

Ms. Schroeder warned attendees that FINRA will continue reviewing for excessive trading/churning (quantitative suitability). Back in September, Bates Research discussed how FINRA continues to deploy RegTech tools as it seeks to curb excessive trading/churning.

CRYPTOCURRENCY

Ms. Schroeder pointed to FINRA’s focus on cryptocurrency-related investment products. In July, Bates Research reported that FINRA issued a Regulatory Notice encouraging each Member Firm “to promptly notify FINRA if it, or its associated persons or affiliates, currently engages, or intends to engage, in any activities related to digital assets, such as cryptocurrencies and other virtual coins and tokens.” Ms. Schroeder shared with attendees that, in September, FINRA charged a broker with securities fraud and the unlawful distribution of an unregistered cryptocurrency security. It was the first time FINRA had filed such a charge in connection with cryptocurrencies. Firms should expect that FINRA will continue to monitor for this kind of activity.

MARGIN LENDING ABUSE

Ms. Schroeder noted that FINRA will also continue to focus on Margin Lending abuse. Earlier this year, FINRA announced it would review margin loans and securities-backed lines of credit for whether “firms maintain controls reasonably designed to prevent excessive margin lending,” whether the loans are suitable and whether customers are provided with adequate risk disclosures.